Nuclear No More: What PG&E Needs to Succeed with DERs

In California’s race for renewables, PG&E’s decision to shut down Diablo Canyon spurs the biggest challenge for distributed energy resources to date.

PG&E’s recent decision to shut down California’s last nuclear plant, Diablo Canyon, comes at a pivotal time in the race for clean energy. While this step is in line with California’s renewable energy mandate, PG&E also has an aggressive goal– to source 55% of its power from renewables by 2031, effectively outpacing the state’s own 50%-by-2030 target. With the race officially on, renewables are perhaps facing their biggest challenge to date.

Diablo Canyon has been supplying energy to nearly 3 million people for over 40 years. While the utility is proposing to replace the 18,000 annual GWh of electricity with a combination of renewables sources, storage and reduced consumption practices, not everyone is confident that this will happen. Supporters of nuclear energy are concerned that without this last reliable source of carbon-free energy, the state could potentially revert back to fossil fuel consumption if PG&E can’t match their current generation capacity with renewables.

The decommissioning comes at a pivotal time, as it is becoming increasingly difficult for nuclear plants to compete. With low gas prices and stagnant load growth keeping market prices down, nuclear plants are suffering under their relatively high fixed costs. Five nuclear reactors were shut down in 2013 and 2014, and more recently, Exelon announced plans to retire two suffering plants after failing to win legislative support. According to the Nuclear Energy Institute, twenty more plants could be at risk for retirement around the United States. This puts added pressure on state efforts to comply with the Clean Power Plan if their nuclear resources are replaced with fossil fuel generation. And in a time where global warming is literally hot on our tails, the stakes are high. However, if the utility can effectively manage their transition to distributed energy resources (DERs), this doesn’t have to happen.

It’s been said time and time again that the future of energy is distributed generation— but now it’s here, in the present. Retiring a massive plant such as Diablo and replacing it with multiple renewable resources presents complex new challenges for utilities around system ramping and grid integration, as energy storage and efficiency technologies will also play major roles in how effectively energy is stored and distributed. However, PG&E expects bringing all those new resources online would cost less than running Diablo Canyon part-time. Since most of its costs are fixed, simply reducing the generation output of the plant would raise its per-kWh cost significantly. “Right now [Diablo Canyon] is a big contributor [of carbon-free generation],” said Tony Early, President of PG&E. “…As you get to 50% renewables, your nuclear plant is going to run less, so in the future it will be less important.” And, thanks to higher rate of return incentives for utilities, the rewards for replacing traditional energy with DERs will be great.

PG&E is already in the midst of transitioning to a more flexible, distributed grid, with nearly a quarter million rooftop solar installations in its service territory to date. However, PG&E’s plan to replace Diablo will require much more investment in their generation, transmission and distribution systems. But while the costs of bringing wind and solar projects online have dramatically decreased, and are projected to keep doing so, there is a key differentiator amongst the emerging, hungry competition- the cost of capital.

Achieving capital at a low cost presents a significant competitive advantage – no matter the asset. In the case of renewables, which is a fairly new and rapidly growing industry, there is a lot of capital to be gained. But with all the perceived risk and difficulties around DERs, the struggle lies in finding it. The more effectively one can manage the investment lifecycle of a renewable assets, the more successful they will be in de-risking and funding its development. Having an investment lifecycle management system in place, from the origination phase all the way to the end of a project’s life span, makes a significant impact on its success and rate of returns. Because in the race for renewable energy, capital is the key to ensuring the success of DERs.